#090 Nov/Dec 1996 — Saving Affordable Housing

Introduction

Since the 1980s, factors as diverse as the globalization of the world economy, job migration from the inner cities to the suburbs, government neglect and cutbacks, the epidemic of illegal […]

Since the 1980s, factors as diverse as the globalization of the world economy, job migration from the inner cities to the suburbs, government neglect and cutbacks, the epidemic of illegal drugs and violence, rampant racial and social discrimination in housing and employment, the feminization of poverty, even government-sponsored housing that replaced stable inner-city neighborhoods with massive high rise projects – “warehousing the poor” – have all contributed to the enormous rise in homelessness and the growing gap between incomes and the cost of decent, affordable housing in the United States.

The scarcity of affordable housing affects all segments of society: households with two full-time wage-earners as well as those on welfare; white people along with African Americans, Native Americans, Hispanics, and most other ethnic minorities; young, middle-aged, and retired people; urban, suburban, and rural residents. (For further discussion of the affordable housing crisis, see Appendix A.) Yet few Americans understand the scope of the problems associated with preserving troubled affordable housing. Even the Department of Housing and Urban Development (HUD) doesn’t know how much of its inventory meets its “troubled housing” definition – i.e., badly deteriorated, in danger of conversion to market-rate housing or foreclosure – although it is clearly a significant portion.

Preserving America’s existing supply of affordable housing becomes even more critical in light of the waning federal commitment to create new low-income housing. While there is a great need for new housing production programs that will serve many different segments of society, the nation must strive to preserve extant distressed housing stock before age, neglect, and/or market forces remove it forever from the rapidly diminishing inventory of affordable housing. From a purely fiscal standpoint, it makes sense to protect prior government investments in affordable housing; it is often cheaper to preserve existing units than to replace them.

In this report, National Housing Institute (NHI) focuses on community-based efforts to save this large, vulnerable inventory of affordable housing facing the loss of federal subsidies and/or foreclosure by HUD, state housing agencies, and other mortgage holders, and not protected by existing preservation laws. (For a description of at-risk units, see Appendix B.) This study takes a close look at some of the nation’s most successful community-based initiatives to save inner-city subsidized and affordable housing and asks:

  • Under what conditions can nonprofit community-based solutions succeed in saving endangered housing?
  • What is necessary for the long-term sustainability of resident and community-owned low-income housing?
  • What can we learn from the motivations, leadership, and organizational structure of groups that succeed?
  • How can successes be replicated most effectively?

To help answer these questions, NHI identifies the key elements of success among six initiatives to save troubled affordable housing. These initiatives involve different properties and local markets, subject to different regulations and financing. One element they hold in common, however, is entrepreneurial leadership-leaders committed to saving affordable housing through creative, innovative action.

This research demonstrates the wide array of factors these leaders must consider. Certainly, turning troubled projects around requires sufficient financing. In addition, the new owner must deal with the project’s physical condition and should be capable of not only undertaking and completing a rehabilitation plan, but also operating, managing, and maintaining the project. Effective leaders must also address residents’ needs, as well as any security deficiencies, drug and crime problems, and other social problems that affect tenants. This further requires the ability to work with the surrounding community, including local government.

Most importantly, this report specifies what the leaders in our study did in partnership with government to save endangered housing. Drawing on the lessons of these cases, and from previous research, NHI outlines steps the federal government can and should take to create effective partnerships with state and local governments and the thousands of community-based organizations (CBOs) dedicated to saving affordable housing and rebuilding the communities in which low- and moderate-income Americans live. By studying these successful partnerships, NHI aims to help guide future efforts to save affordable housing.

The Focus On Community-Based Nonprofit Solutions

We studied three different models of community-based ownership, the community development corporation (CDC), the co-op, and the community land trust (CLT).

CDCs and CLTs vary in size, scope, and funding sources, but most share certain characteristics: they operate within a geographically defined low-income target area, they are controlled by many people who live in that area, and they provide such social services as day-care and senior centers in addition to undertaking economic development projects like housing. They also often act as advocates in pressing city hall for better municipal services and in challenging banks to increase their lending in low-income neighborhoods.

Nonprofit CDCs are now commonplace, numbering between 2,000 and 2,200 nationally. Their capacity and sophistication have grown dramatically in recent years. Approximately half of all housing ever produced by CDCs was completed between January 1988 and December 1993. About 30 percent of all CDC housing was produced between 1991 and 1993. (National Congress for Community Economic Development 1995)

A co-op provides housing while trying to get along with neighbors and struggle for its fair share of city services. Co-ops differ from CDCs in that they are controlled by residents. All co-op residents are members. Co-ops are run by elected boards of directors, which select and terminate tenants and issue all rules and regulations. Although members have the power to control the board, management companies often set policies for co-op boards when residents do not know their rights and responsibilities well enough to direct and set policy themselves.

These nonprofits may be the only groups willing to invest the time and work to save and build affordable housing, and they have provided effective, workable solutions to the housing problem. While private for-profit developers have an important role to play in providing affordable housing, there is a fundamental problem with relying on private developers to supply and restore publicly subsidized housing. The use of government grants and tax subsidies to finance low-income housing generates conflict between public goals to provide low-income housing and private interests to make a profit at taxpayers’ expense. A good example of this is the problems we now must face caused by housing programs initiated more than two decades ago that paid private developers to produce low-income housing with affordability requirements that extended for only a limited period of time. Clearly, today we can see that such policies are not in the public’s long-term best interest when poverty is increasing and government support for new housing is waning.

Civil Society and Nonprofit Community-Based Housing

There are several compelling reasons why public policy should concentrate on enlarging and empowering the nonprofit community-based development sector.

Most importantly, in order to save affordable housing in troubled communities, we must rebuild core institutions in the inner cities that make up the civil society. These are the Tocquevillian independent associations that Harvard Professor Robert Putnam calls the social capital of our inner cities.

Putnam’s research emphasizes that solving community problems requires a strong civil society, or what he calls “social capital.” Putnam stresses the importance of strong organizations and networks that promote trust in the community and that facilitate coordination and cooperation for mutual benefit. The growing number of nonprofit community groups, like those studied in this report, are prime examples of such non-governmental, non-market institutions that underpin democracy and give hope for the revitalization of our inner cities.

National leaders, including senators Bill Bradley and Dan Coats, are increasingly pointing out that we won’t be able to achieve a better society without strengthening our sense of community and the institutions that form the civil society. In a speech to the National Press Club in Washington, DC on February 9, 1995, Senator Bradley defined civil society as:

    …where Americans make their home… hang out with their friends, meet their neighbors, educate their children, worship their god. It is in the churches, schools, fraternities, community centers, labor unions, synagogues, sports leagues, PTA’s, libraries and barber shops….It is where opinions are expressed and refined, where views are exchanged and agreements made, where a sense of common purpose and consensus are forged. It lies apart from the realms of the market and the government, and possesses a different ethic. The market is governed by the logic of economic self-interest, while government is the domain of laws with all their coercive authority. Civil society, on the other hand, is the sphere of our most basic humanity and love.

David Blankenhorn, president of the Institute For American Values, put it this way:

    Civil society turns children into good citizens. Government alone, no matter how well constituted, cannot achieve this goal. The incentives of a free-market economy, as valuable as they are, cannot achieve this goal. Only the family and the other associations of civil society can turn children into good citizens. These institutions are our seedbeds of civic virtue – the foundational sources of competence, character, and citizenship in free societies…

The point both Bradley and Blankenhorn make is that it is more than joblessness, inadequate education, and poor housing that trims opportunities for ghetto residents. Saving inner-city housing requires reversing the erosion of social capital and rebuilding civil society. All across America, but particularly in our inner cities, we need to strengthen families, neighborhoods, communities – all of which are essential to the mutual trust and responsibility on which economic development and self-government depend.

Nevertheless we have grown indifferent, and at times even hostile, to our need to nurture these institutions. These structures of trust and cooperation seem to be decomposing before our eyes. The decline of these institutions has a devastating impact on city residents who want to improve housing opportunities in their communities. Concerned citizens do not collaborate to improve housing because so few respected institutions in the community exist that encourage people to come together for everyone’s benefit.

Putnam and other researchers such as John P. Kretzmann (Shelterforce 1995) and John L. McKnight demonstrate that social capital enhances the benefits of investment in physical and human capital. These different kinds of capital are complementary, not competing alternatives. The research suggests that investments in housing will be more effective if they are coupled with reinvigoration of community associations.

Because of the importance of Putnam’s work for housing policy, his findings are worth reviewing. In his book Making Democracy Work: Civic Traditions in Modern Italy (1993), Putnam shows that working together and prospering is easier in a community with a substantial stock of social capital – an insight that has powerful practical implications for overcoming poverty and improving housing in our inner cities.

Putnam studied regional governments in Italy for over two decades. In this seminal work, Putnam addresses in an empirical way the question of what makes democratic institutions stable, effective, and prosperous. Beginning in 1970, Italians established a nationwide set of potentially powerful regional governments virtually identical in form. Putnam sought to understand why certain regional governments proved to be dismal failures – inefficient, lethargic, and corrupt – while others have been remarkably successful in creating innovative day care programs and job-training centers, and promoting investment and economic development.

What could account for these stark differences in the quality of government? It was not government organization, since that was quite similar from region to region. Nor did other factors, such as party politics, ideology, social stability, political harmony and population movement, account for these differences. The relative success or failure of each region was determined not even by the usual measures of prosperity, such as wealth, level of education, or access to natural resources. Instead, Putnam’s findings indicate that the success of a region was determined by the degree to which trust, reciprocity, and therefore civic engagement, were woven into the social fabric. The successful Northern regions in Italy have many active community organizations. According to Putnam, “Citizens in these regions are engaged by public issues, not by patronage. They trust one another to act fairly and obey the law. Leaders in these communities are relatively honest and committed to equality. Social and political networks are organized horizontally, not hierarchically. These ‘civic communities’ value solidarity, civic participation, and integrity.”

In “uncivic” regions, the concept of citizenship is stunted. Engagement in social and cultural associations is meager; public affairs is somebody else’s business, not that of the residents. “The successful communities,” writes Putnam, “did not become civic simply because they were rich. They became rich because they were civic. The social capital embodied in norms and networks of civic engagement seems to be a precondition for economic development, as well as for effective government. Development economists take note: civics matters.”

Federal policy has not always recognized the importance of social capital. Some past government programs, such as the interstate highway, urban renewal, and public housing programs, have often blindly ravaged existing social networks. As Putnam wrote: “The fact that these collective costs are not well measured by our current accounting schemes does not mean that they are not real. Shred enough of the social fabric and we all pay.”

The troubled state of so much of the nation’s affordable housing stock stems from national economic policies that have rendered 20 to 30 million Americans superfluous. A fundamental change in government policy at the national level is needed to really address the problem of saving affordable housing. Public monies, however, should be spent only in ways that strengthen community organization, not weaken it. As Putnam writes:

    Government policies, whatever their intended effects, should be checked for their indirect effects on social capital. In any comprehensive strategy for improving the plight of America’s communities, rebuilding social capital is as important as investing in human and physical capital… Conservatives are right to emphasize the value of intermediary associations, but they misunderstand the potential synergy between private organization and the government. Social capital is not a substitute for effective public policy but rather a prerequisite for it and, in part, a consequence of it. Social capital, as our Italian study suggests, works through and with states and markets, not in place of them.

Government interventions that neglect or undermine the building of this social capital are detrimental. On the other hand, social policy that encourages social capital formation – building the civic community, the networks and norms of civic engagement – enhances the effectiveness of government action.

Our examination of successful case studies demonstrates that strengthening nonprofit CBOs will allow them to play the roles that the settlement houses did a century ago: nurturing social activity, such as sewing clubs, and civic activism – embodying community as much as charity. These emerging and established organizations are needed in addition to the restaurants, barber shops, and churches that provide critical sources of social capital in low-income communities.

Strengthening social capital (in the form of CDCs and co-ops) by itself will not save affordable housing. But increasing social capital will help create the right environment to reverse inner-city decline. As some of the case studies in our report show, these nonprofit organizations can provide the underlying foundation for political and other organizations that, in turn, can help mobilize a community, create political involvement, and connect people in ways that can help save affordable housing

CDCs and housing co-ops can become critical institutions (similar to local schools, community policing departments, and local churches) for communities above and beyond the services they provide. Communities can congeal around these institutions. These organizations help people develop leadership and organizational skills – chairing meetings, talking to the press, making speeches, lobbying elected officials. They shift people from passive spectators to active, self-confident citizens. The experience of cooperative ownership and self-management itself helps people overcome their cynicism and sense of powerlessness. This, in turn, helps prepare them for future success.

We hope this local energy can also affect inner-city development by influencing national policy. A national network of housing CBOs is needed to promote breakthroughs in social policy, as other nongovernmental community-based groups have done in the past: PTAs joined with other women’s voluntary federations to push historic breakthroughs in social policy, including mothers’ pensions and health benefits; and the American Legion formulated and won the GI Bill, which opened access to college for millions of Americans. So too a national network of housing CBOs can pressure government for better housing programs, and can then work with government to administer and expand these programs.

The Shift in Federal Housing Policy

From the New Deal to the late 1970s, national housing policy was based on the belief that the federal government could help solve our housing problems. During these years, the government played an expansive role in housing. Federal policies stabilized the banking industry and gave lenders greater incentives to extend credit to homebuyers. Washington also provided subsidies to local public housing authorities and private developers for low- and moderate-income housing. Although policymakers debated how much the government should spend and how much it should regulate lenders and landlords, they agreed on the basic premise that Washington had a key role to play.

Until the Reagan administration, every President from Franklin Roosevelt to Jimmy Carter increased federal housing assistance. During the 1980s, the Reagan administration began to scale back and dismantle federal housing programs. The Reagan/Bush administrations froze and cut funding for the poor. They slashed federal housing funds by over 70 percent. To balance their budgets and pay for needed services, local governments had to increase regressive real estate taxes on the middle class, which helped fuel the anti-tax, anti-government revolt.

We are now at a dramatic turning point: the dismantling of the federal role in housing. The 1996 budget – championed by the Republican-dominated Congress elected in 1994 – included a 25 percent reduction in HUD’s budget, with programs targeted to people with the greatest housing needs bearing the bulk of the reductions. The 1997 housing appropriations bill passed by Congress and signed by the President in September 1996 dropped the number of new families receiving housing certificates and vouchers to zero. (DeParle 1996) President Clinton and many in Congress favor eliminating long-standing housing programs and devolving many of the programs that will be spared. And in its 1996 convention platform, the Republican National Committee even proposes – as some members of Congress have suggested – to abolish HUD altogether. (Shelterforce 1996)

President Clinton and HUD Secretary Henry Cisneros have responded to the attacks on HUD by unveiling a plan to “reinvent” the department. The short-term (three-year) plan streamlines and consolidates HUD’s crazy-quilt programs and redirects funds to states and cities. The long-term effect will be a drastic reduction of HUD’s mission and the dollars it provides to house the poor.

HUD has become an easy target – associated with welfare, big cities, and crime – ridden public housing projects, which are often pointed to as an example of the failure of activist government. Yet much of the blame for the failure of federal housing programs for the poor belongs with public officials who were ideologically antagonistic to the programs they ran. As Los Angeles Times reporter Robert Scheer wrote in The Nation, “From 1969, with the exception of the four Carter years, the hopes of various housing programs were in the hands of conservatives who often demoralized the programs’ staffs and recipients, and plundered their meager funds. These officials engineered a self-fulfilling prophecy: attack government programs as corrupt and then prove it by stealing from those same programs.”

While HUD and its programs should become less top-heavy and bureaucratic, the department’s many unheralded successes warrant continuation and expansion. If HUD programs are simply cut, rather than transformed, the trends of increased homelessness, declining homeownership among the poor and working class, and inner-city decay will only worsen.

Restoring Faith in Government

Preserving America’s existing supply of low-income housing is one of the greatest challenges facing our nation. What can we do to preserve these units for low- and moderate-income households? Success will depend not only on local initiative, leadership, and creativity, but on an active and effective federal role as well.

The federal government has often promoted investments in social capital, from agricultural extension services in the last century to tax exemptions for churches in this one. Our national housing policy must renew that effort by prioritizing the building of social capital via nonprofit CBOs as a vital ingredient in redevelopment. CBOs have the potential to build the kind of core institutions that enhance social capital in the inner city and make the critical difference in whether government policies succeed in saving affordable housing and reversing decline.

Without public faith in government, however, efforts to save affordable housing and rebuild communities will have trouble achieving large-scale success. Poorly designed and underfunded housing, coupled with lackluster, incompetent, or unethical government bureaucrats, has fostered the belief that most government interventions to meet the housing needs of the poor have failed. This allows opponents of activist government to say – as they are now – “We told you so.” When faced with a choice between more or less government, the public today can easily be swayed to favor less. The choice of no action, however, leaves problems to grow worse, and the public grows more cynical and angry.

The partnerships reflected in these case studies point to a way out of this policy deadlock. They are the synthesis of progressive ideas and mainstream values. Above all, what the case studies have in common is civic participation – activism – that is fostered, not hindered, by non-bureaucratic government assistance. We hope the successes recounted in this report will help restore public faith in government’s ability to have an effective housing policy for low- and moderate-income households, and to work with local groups to tailor programs to local conditions and needs.

This report aims to influence national policy and inner-city development. By focusing on successful efforts to preserve troubled affordable housing, the study seeks to provide the reader with proven methods that can be replicated and expanded through enlightened public policy. We hope others will learn from these observations, put them to good use, and continue to improve the scant body of research in this area.

 

OTHER ARTICLES IN THIS ISSUE

  • New Heritage House Apartments, Denver

    November 1, 1996

    Note: This profile is part of a series, “Saving Affordable Housing,” which begins with an introduction here.A Model for Independent Living “From the very beginning, when its fortunes depended almost […]

  • Grace Apartments, Denver

    November 1, 1996

    Note: This profile is part of a series, “Saving Affordable Housing,” which begins with an introduction here.A Rental Project in a Marginal Location The group of women’s religious communities that […]

  • Foreword

    November 1, 1996

      Saving Affordable Housing Foreword The National Housing Institute, with funding from the Ford Foundation, has made available Saving Affordable Housing, a practical review of selected examples of community-based groups […]